• President Donald Trump's trade policies may lead to recession due to tariff uncertainty, the economist Paul Krugman said.
• Unpredictable tariffs hinder business investment and consumer confidence, affecting demand.
• Recent market volatility reflects concerns over Trump's shifting tariff policies on trade partners.

US President Donald Trump's trade policies could contribute to a recession, not because of the tariffs themselves, but because of their unpredictability.

"A stable tariff rate would not cause a recession, but an unpredictable tariff rate that can change the next day is really a depressing effect on demand," the economist Paul Krugman said on an episode of the Goldman Sachs Exchanges podcast uploaded on Wednesday. He called Trump's new trade tariffs the "biggest trade shock in history."

The Nobel Prize-winning economist said tariffs don't usually cause recessions. Levying tariffs on foreign products means that people will buy fewer imports and more domestic goods. This could have "unpleasant consequences" such as higher cost of living and lower efficiency, he said.

However, tariffs alone do not generally cause a collapse in demand.

The issue with Trump's tariffs is that they are "extremely uncertain," Krugman said. "Nobody knows what they will be. Nobody knows what comes next."

For businesses, that uncertainty is a stumbling block to investment decision-making, he said.

The sentiment could also flow through to consumer perception and morale, ultimately hitting that segment of demand too, he said.

"If consumer spending falls off a cliff, then it can become a severe recession," he said.

Krugman's comments follow weeks of market swings as investors and traders grapple with the Trump administration's new tariffs on trade partners and shifting positions on policies.

This week, Trump suggested that he could reduce the 145% tariff rate he has imposed on Chinese imports this year. On Tuesday, he told reporters that "145% is very high, and it won't be that high."

"It'll come down substantially, but it won't be zero," he said.

China has imposed a 125% tariff on US imports.

Treasury Secretary Scott Bessent said on Wednesday that the current tariff levels between the two countries are unsustainable, but that the US wouldn't be cutting them unilaterally.

Some companies — including Alaska Air, Southwest Airlines, and recruitment firm PageGroup — have started withdrawing or withholding guidance for this year.

• President Donald Trump has hit out at Fed chair Jerome Powell for not cutting interest rates faster.
• Fresh fears about the central bank's independence hit stocks, bonds, and the dollar on Monday.
• Wall Street figures said Powell might be Trump's scapegoat, but removing him could backfire badly.

President Donald Trump has once again blasted Federal Reserve Chair Jerome Powell for cutting interest rates too slowly and warned he could remove him from his post. The latest threat to the central bank's independence sent more shockwaves through markets.

Piling those fresh worries on top of tariff woes meant the "sell America" trade was in full force on Monday with US stocks, Treasurys, and the dollar all dropping.

The S&P 500 fell 2.4%, the dollar slid to its weakest level since 2022, the 30-year Treasury yield rose by about 10 basis points to 4.9%, and gold touched a record $3,500 an ounce as investors piled into the haven asset.

Here's what big Wall Street voices are saying about Trump's feud with Powell.

Jeremy Siegel: Powell may be Trump's 'scapegoat'

If the Fed doesn't cut rates in June, Powell "risks not only deepening a potential downturn, but also becoming the scapegoat for it," Jeremy Siegel said in his weekly WisdomTree commentary on Monday.

The finance professor known as the "Wizard of Wharton" said he expected the president to "increasingly blame the 'too slow' Powell for any downsides that materialize from Trump's policies."

Siegel added that Powell "may be technically secure in his position, but that doesn't mean he's insulated from blame."

Mark Haefele: Faith in the Fed is in danger

Removing Powell before his term ends in May 2026 "could call into question the ability of the central bank to set interest rates without political interference, and hence the outlook for price stability," Mark Haefele, the chief investment officer of global wealth management at UBS, said in a Tuesday note.

Haefele and his team said markets are "likely to be sensitive" to any signs that the White House intends to expel Powell or "replace him with a more 'malleable' candidate" once his term ends.

Liz Ann Sonders: Removing Powell could send rates higher

Ousting Powell and installing a more compliant Fed chief would undermine the central bank's vital independence, Liz Ann Sonders, the chief investment strategist at Charles Schwab, said on "Market on Close" on the Schwab Network on Monday.

In that scenario, "any move by the Fed to preemptively start easing policy aggressively" that doesn't fit its mandate "might not have the intended effect of boosting growth or boosting confidence," Sonders said.

It could even push long-term bond yields higher, "defeating the purpose of a lot of this," she cautioned.

Jim Reid: Powell's colleagues could revolt

Powell has a big say in Fed decisions, but monetary policy is decided by majority vote "so removing Powell could lead to increased pushback from other members against pressure on the Fed to deliver easier policy," said Jim Reid of Deutsche Bank in a Tuesday note.

Reid and his team added that investors are concerned the US may lose its credibility as a country with an independent central bank whose monetary policy isn't dictated by politics.

Nouriel Roubini: Trump's threats are an 'own goal'

"Trump is shooting himself in the foot with this talk of firing Powell," Nouriel Roubini, a professor emeritus of economics at NYU Stern known as "Dr. Doom," said in a X post on Monday.

Roubini called it "a repeated own goal" as the chatter has hit stocks, bonds, credit spreads, and the dollar. He said that even if Trump succeeds in firing Powell, it would be a"totally Pyrrhic victory as the result would be a de-anchoring of inflation expectations and higher bond yields."

If Trump is planning to scapegoat Powell for higher inflation and slower growth, it's "not clear that this clumsy blame game will fly even with the MAGA base whose sentiment is heading south, let alone with financial markets," Roubini said.

Paul Krugman: Trump is making Powell's job harder

"What makes Trump's attempt to bully the Fed especially ominous is the fact that the Fed will soon have to cope with the stagflationary crisis Trump has created," Krugman said on his Substack.

The former MIT and Princeton professor and a Nobel Prize winner said Powell will soon have to choose between raising rates to fight inflation, or cutting them to fight recession.

The president's threats had complicated that decision, Krugman said. "Trump has made Powell's dilemma even worse with his attempted bullying, because a rate cut would be seen by many as a sign that Powell is giving in to avoid being fired."

Michael Every: Trump isn't alone in questioning the Fed

Trump's criticism of Powell as "Mr. Too Late" and a "major loser" represents a "comic-book punch" on the Fed chair, said Michael Every of Rabobank in a Tuesday note.

But the president isn't the only person frustrated with the Fed, Every continued.

"To be honest, Trump is saying many of the same things that many of those covering the Fed in markets are too — just far less politely; and very inappropriately in the eyes of those same commentators," Rabobank's global strategist said.

Peter Schiff: Trump wants a 'loyal soldier'

Peter Schiff, the chief economist at Euro Pacific Asset Management, outlined what Trump may seek in Powell's successor.

Trump "will likely nominate the most dovish replacement to ever chair the Fed," he said in a weekend X post.

The president's pick will be a "loyal soldier willing to sacrifice the dollar and create as much inflation as needed to monetize exploding debt to keep interest rates artificially low," Schiff added.

• Top economists including Paul Krugman criticized Trump's plan to impose tariffs on Canada and Mexico.
• The pair said import taxes would damage trust in the US, while Robert Reich said Trump had ill intent.
• Steve Hanke said Americans pay for tariffs, and they don't increase employment.

Prominent economists including Paul Krugman, Larry Summers, Steve Hanke and Robert Reich have been airing their views on President Donald Trump's plan to impose tariffs on imports from Canada and Mexico.

Trump said the plan to impose 25% levies on tariffs on most goods entering the US from its northern and southern neighbors, and a 10% tariff on Chinese imports, could cause "some pain" but would be "worth the price."

They were due to take effect on Tuesday, but Mexican president Claudia Sheinbaum said Monday they would be delayed by a month following a "good conversation" with Trump.

Damaging trust

Krugman, a winner of the Nobel Memorial Prize in Economic Sciences, said in a Substack post that tariffs threaten global faith in America.

"And even if some of the tariffs prove temporary, the Rubicon has been crossed," he wrote. "We now know that when the United States signs an agreement, on trade or anything else, the president will treat that agreement as a mere suggestion to be ignored whenever he feels like it. That revelation in itself will do huge long-term damage."

The former MIT and Princeton University professor also cautioned the modest slump in stocks on Monday might herald a steeper sell-off. "This market complacency is a self-defeating prophecy: muted market reaction makes it likely that Trump will continue and expand his trade war," Krugman said.

Price pain and economic fallout

Summers, a former US Treasury chief and Harvard University president, said on X the tariffs were "inexplicable and dangerous."

They stand to raise the prices that Americans pay for many things including cars and gas, make US firms less competitive, stymie job creation, increase unemployment, and trigger retaliation from other countries that harms the US economy, he said.

They could also destabilize the Mexican economy, spurring more of its citizens to head for the US border, and lead to other countries viewing the US as a "bad partner" that's willing to "arbitrarily impost tariffs as a form of hostage-taking for leverage," Summers said.

In a follow-up post, Summers said that "bullying doesn't win over time on the playground or in the international arena." He said this "self-inflicted supply shock" was a gift to Chinese leader Xi Jinping and made China look relatively better to the rest of the world.

He added that price hikes could accelerate overall inflation and force the Federal Reserve to hike interest rates instead of cutting them, curbing economic growth.

'Hidden tax'

Steve Hanke, a professor of applied economics at Johns Hopkins University, wrote on X that research shows US consumers and businesses — not foreign exporters — pay virtually the entire cost of tariffs.

"Tariffs = a hidden tax on Americans," wrote the former economic advisor to Ronald Reagan.

Hanke also dismissed the idea of a domestic jobs boom. "The idea that tariffs will increase jobs is nonsense. Manufacturing output in the US is up, but manufacturing jobs have been declining for the last 40 years — tariffs or no tariffs."

He added that tariffs rob Americans of purchasing power.

Moreover, the president's tariffs threaten the entire North American economy and thus growth, inflation, and investor and business confidence across the world, Peel Hunt economists said in a research note.

"Although the US appears strong, momentum is narrowly driven by fiscal excesses and consumer exuberance," senior economist Kallum Pickering and his team wrote. "If tariffs lead to a spike in bond yields that, in turn, prick the US equity market bubble, the need for sudden fiscal discipline and a more cautious consumer could destabilise the upswing."

"Whether it happens through inflation, higher interest rates, or increased future taxes to cover the deficit-financed tax cuts which Trump proposes to offset the import levies, US consumers will pay for tariffs," they added.

Money and power

Reich, who advocated for the North American Free Trade Agreement (NAFTA) during his tenure as labor secretary, said on his Substack that Trump is using tariffs to demonstrate his power and unpredictability.

Reich said Trump's actions tend to be for his own benefit. He dishes out tax cuts and regulatory relief to US executives, and special treatment on trade, energy, and intelligence to foreign oligarchs, in exchange for lucrative business deals, information, campaign funds, and positive publicity, Reich said.

"Trump says he's doing this for American workers," Reich wrote. "Nothing could be farther from the truth. He's doing this for himself and for the world's oligarchy, which, in turn, is busily siphoning off the wealth of the world."

• Donald Trump champions the working class but his policies are bad news for them, Paul Krugman says.
• The Nobel-winning economist says tariffs and deportations will hurt instead of help the poor.
• "A lot of people are going to get brutally scammed," Krugman said.

Donald Trump rode to victory in the US presidential race by pledging to put America first and fight for blue-collar workers. Paul Krugman says he'll only make their lives harder.

The economist, who won the Nobel Memorial Prize in Economic Sciences in 2008, criticized the president-elect's plans to raise tariffs and cut taxes during Tuesday's episode of "The Daily Blast with Greg Sargent" podcast.

He told The New Republic show that those and other policies would lead to the working class paying higher prices while high earners keep more of their money.

"Even more than usual for a Republican, he appears to have an extremely regressive economic program in mind, one that really will effectively redistribute income away from working-class voters to the top," Krugman said.

American households are already being pinched by inflation, which spiked to a 40-year high of more than 9% in the summer of 2022 and remains above the Federal Reserve's 2% target.

On top of higher prices for food, fuel, rent, and other basics, many consumers are also paying more toward their credit cards, car loans, and mortgages.

That's because the Fed, in a bid to curb inflation, increased its benchmark rate from zero to north of 5.25% in under 17 months, and has kept it as high as 4.5% for now.

The battle over groceries

Krugman, a former MIT and Princeton University professor and New York Times columnist, zeroed in on grocery prices. Trump said during his campaign that he would reduce them, but he's walked that claim back in recent weeks.

Yet recent surveys show that his supporters still expect him to do so, Krugman said, despite the fact that broader prices are still rising and deflation is almost universally regarded as undesirable for an economy.

A CBS News/YouGov survey, conducted in late December with a nationally representative group of 2,244 US adults, found that 40% of Americans expect Trump to make food and grocery prices go down, exceeding the 36% who expect him to make them increase.

"A lot of people are going to get brutally scammed," Krugman said. Trump isn't just misleading people by saying they'll be better off once he's in office, he also doesn't appear to know how he'll deliver on his promises, Krugman continued. "So the scam is there is no plan."

Trump said last year that lowering grocery prices would be tricky, but improving supply chains and boosting domestic energy production could lower costs for farmers, who could then pass those savings onto consumers.

Tariffs and immigration

Separately, Krugman nodded to the fact that tariffs are a tax on imports, and businesses usually pass on their increased costs by charging higher prices to consumers.

He described their impact as "really bad," and said the fallout from Trump's proposed mass deportations would be "much, much worse." They'd be hugely disruptive and drive up prices in industries like agriculture, food processing, and construction, Krugman said, leaving the US with a shortage of workers for large-scale programs like rebuilding Florida after a hurricane.

The author and blogger also rang the alarm on Trump and his allies' fierce criticism of colleges and skepticism of higher education.

"We've been pulling ahead on technology, but an administration that's extremely hostile to universities and education is going to undermine that source of advantage as well," Krugman said.

"Trump wants to turn the clock back to 1896, and that's not good for the US economy."

• Elon Musk and Vivek Ramaswamy are butting heads with Donald Trump's base over the H-1B visa program.
• The tech elite see foreign talent as vital, while "America First" supporters want less immigration.
• Here's what Paul Krugman, Robert Reich, and other economics gurus are saying about the debate.

Elon Musk and Vivek Ramaswamy have clashed with Donald Trump's MAGA base on the subject of legal immigration, specifically the H-1B visa program for skilled workers.

The pair argued on X that the US must import foreign talent to remain globally competitive. In a now deleted post, Musk seemed to say there weren't enough smart Americans to fill the most demanding tech jobs. In a separate post, Ramaswamy blamed the shortfall on a culture in the US that has "venerated mediocrity over excellence."

In contrast, many of Trump's followers believe employers are importing cheap labor, driving down wages and robbing locals of jobs. Under the banner of "America First," they want to radically reduce legal immigration so that more Americans get well-paid jobs in areas such as technology and engineering.

Economics gurus are divided on the topic. Here's a roundup of their views.

Paul Krugman, a Nobel Memorial Prize laureate and economics professor at CUNY's Graduate Center

"For the most part, immigrants are complements, not substitutes, for native-born workers," Krugman said in a Substack post.

"So original MAGA is wrong to claim that immigration is impoverishing 'real Americans' in general. But tech-bro MAGA is wrong as well as offensive in saying that we need foreign workers because Americans are stupid or lazy. Furthermore, the availability of less expensive foreign tech workers does reduce the incentive of tech firms to train a home-grown work force and undermines the political incentive to improve our education system.

"I'd still argue that something like H-1B makes America richer and stronger, especially given the spillovers generated by a successful technology sector. But Muskaswamy and friends aren't helping their case by insulting Americans' culture and intelligence."

Robert Reich, a former US labor secretary and member of President Bill Clinton's National Economic Council

"Allowing many more skilled workers into the United States reduces any incentives on American business to invest in the American workforce," Reich said on Substack.

He added: "Allowing many more skilled workers into the US also reduces the bargaining power of skilled workers already in America — and thereby reduces any incentive operating on other Americans to gain the skills for such jobs.

"And opening America to skilled workers also reduces the incentive on foreign nations to educate and nurture their own skilled workforces. Why should they, when their own skilled workers can easily migrate to America?

"The major beneficiaries in the US of opening the nation to skilled workers from abroad are CEOs and venture capitalists like Musk and [David Sacks], whose profits and wealth would be even higher if they could siphon off cheaper skilled workers from abroad."

Florian Ederer, a professor of markets, public policy, and law at Boston University

"How dare the US not kneecap itself and attract the best and brightest talent from around the world!" Ederer replied to an X post expressing skepticism about expanding the H-1B visa program and ending caps on green cards by country.

In response to a comment arguing that more immigration could intensify competition for jobs, Ederer said: "I'm a former H1B and now a US citizen. I'm an economics professor, a profession with a particularly large share of foreign workers. So this is literally what happens in my job."

Jeff Eisenach, a senior fellow at the American Enterprise Institute

"Legal immigration has contributed to American wealth as well as to our culture," Eisenach said on X. "For example, Latino families are culturally conservative, educate their kids, create new businesses -- and make us ALL richer."

"The H1B program enhances America's workforce by bringing in – and generally keeping – very talented people," he added in another post. "And, these are not people who are competing for middle class jobs."

In a third post, Eisenach argued that if the H-1B program was being abused to bring in nontechnical workers, that's "obviously a problem that needs to be addressed."